On October 21, 2015 the Securities and Exchange Commission (SEC) announced that on October 9, 2015, the United States District Court for the Southern District of New York entered default judgments against Premiere Power, LLC and its Chairman, Jerry Jankovic for the violation of the anti-fraud provisions of the federal securities laws, due to his failure to notify investors that they were using over half of the money they raised to defend a lawsuit that was unrelated, and by making other untrue and deceitful disclosures in the offering materials given to investors. The SEC’s request was granted by the Court for permanent injunctions against Premiere and Jerry Jankovic, holding them jointly and individually liable for repayment of illicit earnings with prejudgment interest, and ordering them to pay civil penalties.

The SEC’s offering fraud complaint claims that soon after establishing Premiere, a company supposedly pursuing projects relative to energy on Native American land, Jerry Jankovic and his son, CEO John Jankovic, agreed to use about half of the money they raised from investors in Premiere to cover the costs of an unrelated lawsuit pending against Jerry Jankovic and a business associate, Sandra Dyche. As a result of this agreement, the Jankovics and Dyche purportedly diverted $1 million out of a total of $1.95 million raised for Premiere. The SEC alleged that not only did they mislead Premiere investors about how their funds would be used, but Premiere also gave false accounts to investors about its affiliates, board membership, its auditor, and about Jerry Jankovic’s “proven track record” of creating “successful” energy companies. Read More

Common Questions About Schedule 13D and 13G Filing Requirements For Public Companies

In going public transactions, a company can register a class of securities and thereby become subject to the SEC’s reporting requirements by filing a Form 10 Registration Statement or Form 8-A registration statement under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Shareholders of issuers with a class of securities registered under the Exchange Act are subject to insider reporting requirements. Sections 13(d) and 13(g) (15 USCS § 78m) of the Exchange Act require beneficial owners of more than 5 percent of a class of equity securities of a Securities & Exchange Commission (SEC) reporting issuer to disclose information relating to their beneficial ownership by filing a Schedule 13D or Schedule 13G with the SEC. This blog post addresses the most common questions we receive about Schedules 13D and Schedule 13G beneficial ownership reporting. Read More

On October 16, 2015, the Securities and Exchange Commission (SEC) filed fraud and other charges against Donald Lester and his private equity firm, Rubicon Alliance, LLC (“Rubicon”). According to the SEC’s fraud complaint, from about January 2010 through December 2014, Lester and Rubicon accumulated over $10 million by the selling unregistered securities for two investment funds that were managed by them, CFI Fund, LLC (“CFI”) and NuPower, LLC (“NuPower”). The complaint also alleges that prior to the recent offense, Lester was involved in selling unregistered securities for a group of investment funds known as Equity Edge, which was having trouble repaying investors. Among other things, the SEC’s complaint claims that Rubicon had guaranteed Equity Edge’s performance, and that Lester conducted a fraudulent and undisclosed scheme to use $2.8 million of CFI investor funds to repay Rubicon’s obligations to the Equity Edge investors.

The SEC also claims that the CFI and NuPower offerings breached several registration provisions of the federal securities laws. According to the fraud complaint, both the CFI and NuPower offerings were unregistered and not subject to any applicable immunity, CFI and NuPower acted as investment companies without registering with the SEC, and Rubicon and Lester halted transactions in securities without registering with the SEC as a broker or associating with a registered broker. Read More

On October 13, 2015, the Securities and Exchange Commission (SEC) charged a hedge fund manager from Charlotte, Lonny Bernath, with defrauding investors in three hedge funds over several years.

The SEC filed a complaint stating that between at least 2007 and 2011, Bernath instructed three funds that were managed by his investment advisory firm to make loans to and investments in illiquid real estate and business ventures which he also oversaw and had personally invested in. The complaint also states that Bernath gave a false account to the Funds’ investors regarding these investment activities and did not disclose them until 2013. Also included in the SEC’s complaint is that from 2008 to 2011, Bernath regularly kept record of the value of these investments and loans, to the detriment of the Funds’ investors.

Bernath has agreed to partially settle the case against him, without admitting or denying the allegations. Read More

The Securities and Exchange Commission (SEC) announced on October 9, 2015 that it has charged Nicolas Zanen, Vice President of Trading at a subsidiary of Cheniere Energy, Inc., and his college friend, Francis van Steenberge, with insider trading in Cheniere options ahead of announcements about Cheniere’s entry into contracts with certain counterparties and Cheniere’s public stock offering.

The SEC’s complaint regarding Zanen’s insider trading states that Zanen and van Steenberge entered into an arrangement in 2011 to share material, private information regarding Cheniere. Under their supposed arrangement, Zanen would share material, non-public information about Cheniere with van Steenberge, who then would trade, including in out of the money options, on the basis of that information in his personal brokerage account as directed by Zanen. The SEC’s insider trading complaint claims that in 2011 and 2012, van Steenberge traded ahead of least four announcements based on private information that Zanen gave him, resulting in nearly $800,000, which the two intended to share as part of their arrangement. The insider trading complaint also claims that by giving private information about Cheniere to van Steenberge for a personal benefit, Zanen breached a duty he owed to Cheniere. Read More

On October 30, 2015, the U.S. Securities and Exchange Commission (“SEC”) announced the temporary suspension of trading in the securities of American Power Corp. (AMPW) and Locan, Inc. (LOCN).  The SEC trading suspension commenced at 9:30 a.m. EDT on October 30, 2015 and terminates at at 11:59 p.m. EST on November 12, 2015.

The SEC issued the trading suspension of AMPW and LOCN due to a lack of current and accurate information about the companies because they had not filed certain periodic reports with the SEC. This SEC order suspending trading was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (Exchange Act). The SEC cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by AMPW and LOCN. Read More

The Securities and Exchange Commission (SEC) announced on October 8, 2015 that Judge Paul Barbadoro of the United States District Court for the District of New Hampshire entered summary judgment in favor of the SEC on its claims against Allen Smith, a Florida lawyer, for his role in an advance fee investment scheme involving prime bank transactions and overseas debt instruments.

On July 2, 2015, the Court discovered that Allen Smith violated the antifraud and securities registration provisions of the federal securities laws. The Court granted the SEC’s request for permanent injunctions and disgorgement against Smith, but refused at that time to impose a civil penalty against him. On October 1, 2015, the Court granted the SEC’s renewed motion for a civil penalty, ordering Smith to pay a penalty equal to the earnings he made through the investment scheme. Read More

The Securities and Exchange Commission (SEC) announced on October 8, 2015 that the United States District Court for the District of Nevada entered default judgments against Las Vegas-based James Erwin and his corporate entity, Las Vegas-based Joint Venture Solutions, Inc., for violating the securities offering and broker-dealer registration provisions of the federal securities laws when they promoted a fictitious prime bank investment scheme. The Court granted the SEC’s request for permanent injunctions against Erwin and Joint Venture Solutions, held them jointly and individually responsible for disgorgement of illicit earnings and ordered them to pay civil penalties.

The SEC’s complaint alleged that Erwin and Joint Venture Solutions violated the securities offering and broker-dealer registration provisions of the federal securities laws by promoting investments in Malom Group AG, a Switzerland based a company named with an acronym for “Make A Lot Of Money.” The SEC claimed that Malom and its principals, who were separately charged in a related action, were behind a pair of advance fee schemes guaranteeing astronomical returns to investors in purported prime bank transactions and overseas debt instruments. Read More

On October 8, 2015, the Securities and Exchange Commission (SEC) announced that the Court entered final judgments on September 28, 2015, against Garfield Taylor, Jeffrey King, Garfield Taylor, Inc. (“GTI”), Gibraltar Asset Management Group, LLC (“Gibraltar”) and The King Group, LLC (“TKG”), for their involvement with a multi-million dollar Ponzi scheme in the Washington area.

The SEC filed a complaint on November 18, 2011, claiming that Gibraltar’s and GTI’s former Chief Executive Officer, Garfield Taylor, conducted a Ponzi scheme that he designed to target investors in the Washington, D.C. metropolitan area. The complaint stated that the scheme, directed by Taylor with the help of King and others, defrauded more than $27 million from about 130 investors from 2005 to 2010, before eventually collapsing in 2010.

On September 17, 2012, the Court granted the SEC’s motion for default judgment as to GTI, Gibraltar, King and TKG, and on December 13, 2012, the Court granted the SEC’s motion for summary judgment on all of the charges toward Taylor that were imposed by the SEC regarding the Ponzi scheme. On March 28, 2013, before deciding the appropriate relief against Taylor and the defaulting defendants, the Court granted Taylor’s motion to hold the case in abeyance because of the pending federal criminal charges against him at the time.

Taylor pleaded guilty in March 2014 to securities fraud.  In May 2015, he was sentenced to 13 years in prison and was ordered to pay over $28.6 million in restitution for the funds he received during his involvement with the Ponzi scheme.  Read More

The Securities and Exchange Commission (SEC) on October 7, 2015 filed settled insider trading charges against Oscar Wu, a former portfolio manager at a New York-based investment adviser.

The SEC claims that, during the course of his employment as a portfolio manager, Wu learned material, nonpublic information about Nevada-based telecommunications company Unwired Planet, Inc., and then exploited that information to execute trades in a relative’s account and also tip a second relative who then traded based on the information.

According to the SEC’s complaint, in late 2012, Unwired Planet and Wu’s employer – an investment firm that was considering investing in Unwired Planet – entered into an agreement under which Unwired Planet would provide Wu’s employer with confidential information about the company.

Among the information Wu learned was that Unwired Planet was in the process of negotiating a revenue-sharing agreement with Sweden-based Telefonktiebolaget L M Ericsson relating to a portfolio of mobile telecommunications patents. Read More

The Securities and Exchange Commission (SEC) on October 6, 2015, charged two former top executives at OCZ Technology Group, Inc. for accounting failures at the now-bankrupt seller of computer memory storage and power supply devices.

In a complaint filed in the Northern District of California, the SEC states that OCZ’s former CEO Ryan Petersen conducted a scheme to materially increase OCZ’s earnings and gross margins from 2010 to 2012. It separately charged OCZ’s former chief financial officer Arthur Knapp for certain accounting, disclosure, and internal accounting controls failures at OCZ. Knapp agreed to settle the SEC’s charges without admitting or denying the claims against him. The SEC’s litigation against Petersen is ongoing. Read More

On September 22, 2015, the Securities and Exchange Commission (SEC) filed, under seal, fraud charges and, on September 28, obtained asset freezes against the operator of a worldwide pyramid scheme that falsely promised investors would profit from a venture supposedly backed by the company’s massive amber holdings.

The SEC claims that defendants Steve Chen, USFIA Inc. and Chen’s other entities have generated more than $32 million from investors in and outside the U.S. since at least April of 2013. The SEC’s complaint states that Chen and his companies misled investors about a profitable initial public offering for USFIA that never happened and about claims to own or control amber deposits worth billions of dollars. Read More

The Securities and Exchange Commission (SEC) announced on October 5, 2015 that on September 28, 2015, Judge Richard Story of the United States District Court for the Northern District of Georgia found James Quay guilty of criminal contempt due to Mr. Quay’s false testimony at a hearing regarding his nonpayment of disgorgement and penalties ordered by the court pursuant to a 2012 judgment.

On October 2, 2012, the SEC charged Mr. Quay, a convicted felon and disbarred attorney, with defrauding two elderly women he convinced to invest with him directly.  On October 19, 2012, Mr. Quay, without confessing to or denying the allegations of the complaint, agreed to entry of a Final Judgment that ordered him to pay about $2 million in disgorgement, prejudgment interest, and penalties.  Mr. Quay did not make any payment toward the judgment for almost three years.  The SEC then discovered that Mr. Quay had access to two trust accounts with total liquid assets in over $1.2 million.  Read More

The Securities and Exchange Commission (SEC) charged five Arizona residents with embezzlement. Allegedly, these residents stole millions of dollars from investors to make car payments, buy clothes, and fund travel and entertainment at luxury resorts, casinos, and strip clubs.

The SEC claims that Jason Mogler, James Hinkeldey, Casimer Polanchek, Brian Buckley and James Stevens embezzled roughly 97% of the $18 million they raised from 225 investors who were told the funds would be used to obtain and develop beachfront property in Mexico as well as to run recycling facilities and to buy foreclosed residential properties for resale. They repeatedly lied about the purported progress of the investments to calm worried investors as time extended past when their promissory notes should have been repaid. In certain instances they made Ponzi-like payments to investors, threatening them with lawsuits by using money from new investors, which Mogler termed “robbing Peter to pay Paul.” Read More

The Securities and Exchange Commission (SEC) announced October 1, 2015 that on September 30, 2015, the United States District Court for the District of Massachusetts issued an order setting final judgments in an enforcement action filed in December 2012 against defendants Jean-François Amyot, the operator of a pump-and-dump scheme, and Spencer Pharmaceutical Inc. (“Spencer”), a publicly-traded company with addresses in both Boston, Massachusetts, and Canada. The Court also ordered the entry of final judgments against IAB Media Inc. (“IAB Media”) and Hilbroy Advisory Inc. (“Hilbroy”), two Canadian companies controlled by Amyot. Among other things, the final judgments will order the parties to variously pay a total of $ 7,084,764 in disgorgement of illicit earnings, prejudgment interest, civil penalties, and sanctions. Read More

On December 28, 2012, the Theft of Trade Secrets Clarification Act became law.  The Act amends the Economic Espionage Act of 1996 (EEA) and expands the jurisdiction of federal courts in cases regarding the theft of trade secrets.

The EEA marked the first major federal legislation designed to grant federal courts jurisdiction over claims for misappropriation of trade secrets.  The EEA makes it possible for federal prosecutors to pursue criminal charges against those who knowingly embezzle trade secrets of U.S. businesses.  The EEA also provides for injunctive relief for stealing trade secrets in a civil action under the statute.

Before the EEA, trade secrets were protected by state laws, mostly under state-adopted versions of the Uniform Trade Secrets Act (UTSA).  Under the UTSA, federal courts had jurisdiction over trade secret theft claims by means of diversity jurisdiction or federal criminal statutes that covered trade secret misappropriation. Read More

The Securities and Exchange Commission (SEC) announced on October 1, 2015 that on September 28, 2015, the Honorable Haywood Gilliam of the United States District Court for the Northern District of California entered a final judgement against defendants Ranjan Mendonsa and Ammar Akbari. Mendonsa, Akbari, and two other defendents were charged with insider trading in Ross Stores securities. Information regarding the store’s securities was leaked by one of the retailer’s employees.

In the SEC’s complaint, it claims that defendant Saleem Khan was regularly tipped by his friend Roshanlal Chaganlal, a director in the finance department at Ross headquarters in Dublin, California. Khan supposedly used the confidential information to illegally trade ahead of the company’s public release of sales results. Khan also allegedly tipped his work colleagues, Mendonsa and Akbari, so they too could trade in Ross securities. The complaint further states that between August 2009 and December 2012, the insider trading ring spearheaded by Khan collected millions of dollars in illicit earnings. Read More

Our readers have spoken.  Securities Lawyer 101 written by Brenda Hamilton, a securities and going public attorney has won third place in overall winners in The Expert Institute’s Best Legal Blog Competition. From a field of more than 2,000 legal blog nominees, Securities Lawyer 101  received third place in one of the largest competitions for legal blog writing online today.

“We are proud to be recognized by The Expert Institute for our Securities Law & Going Public Blog, and are grateful to our readers for helping us get this far. Thank you for taking time out of your busy schedule to recognize our blog” stated Ms. Hamilton.  Securities Lawyer 101 focuses on corporate finance and securities law covering such topics as SEC Enforcement, White Collar Crime, Regulation A+, Form S-1 & Form 10 Registration Statements, Rule 506, and going public transactions. The blog  can be viewed at www.securitieslawyer101.com/blog Read More

The Securities and Exchange Commission (SEC) announced that it charged two former executives of ContinuityX Solutions, Inc. with fabricating nearly all of the company’s revenue and enriching themselves in the process. Metamora, Illinois-based ContinuityX was a publicly traded company that claimed to sell Internet services to businesses. The company is now in bankruptcy and its former CEO was criminally charged last year with six counts of wire fraud for conduct related to the SEC’s allegations.

The SEC’s complaint, filed in federal court in Illinois, charges ContinuityX’s former CEO David Godwin and former chief financial officer Anthony Roth with engineering a scheme to inflate the company’s revenues. ContinuityX reported revenues of $27.2 million from April 2011 to September 2012, but the complaint alleges that 99 percent of it came from fraudulent and fictitious sales. The complaint also states that Godwin and Roth used the allegedly fraudulent SEC filings to raise millions of dollars from investors in a private offering of ContinuityX securities. Read More

On September 29, 2015, the Securities and Exchange Commission (SEC) charged a company and its manager with securities fraud of their investors by promising them outlandish “low risk” investment returns and then misusing the investors’ money to, among other things, pay for personal living expenses and engage in risky, undisclosed futures trading.

The SEC’s securities fraud complaint claims that Charles Riel and REinvest LLC raised over $280,000 from at least five investors by implying to sell them securities in REinvest. In the complaint about Riel’s securities fraud, the SEC alleges that although Riel told investors that REinvest was going to invest their money in high yield financial growth vehicles that would create returns as high as 150% over five years, Riel simply stole most of the money by using it to make payments on a mortgage, taxes, and utility and cable bills, and to make cash and debit card withdrawals and charitable donations. Read More

The Securities and Exchange Commission (SEC) announced on September 29, 2015 fraud charges against a registered investment adviser and its owner for allegedly participating in self-dealing and failing to communicate material facts to clients about conflicts of interest, use of investor funds, and the risks of the investments they suggested.

In a complaint filed in U.S. District Court for the District of Massachusetts, the SEC claims that Family Endowment Partners LP and its owner, Lee Dana Weiss, of Newton, Massachusetts, strongly urged their clients to invest more than $40 million in illiquid securities distributed by several related companies without revealing that Weiss had an ownership interest in the parent company of these entities and collected payments from these entities. Read More

On September 29, 2015, the Securities and Exchange Commission (SEC) charged Jose Ramirez, a former top broker at UBS Financial Services Incorporated of Puerto Rico (“UBSPR”), who made material misrepresentations and omissions and conducted a fraudulent scheme that involved the use of credit line proceeds from a UBSPR-affiliated bank to buy shares in UBSPR affiliated closed-end mutual funds.

The complaint filed in federal court in Puerto Rico against Jose Ramirez, a previous registered representative in UBSPR’s Guaynabo branch office alleges that Ramirez increased his compensation by at least $2.8 million by having certain customers use proceeds from lines of credit with UBS Bank USA to purchase additional shares in UBSPR closed-end mutual funds. To avoid exposure, Ramirez allegedly told the customers to transfer money from their line of credit to an outside bank account before depositing the funds into their UBSPR brokerage account and buying the closed-end funds. The funds invested substantially in Puerto Rico municipal bonds and lost value as the Puerto Rico bond market receded, requiring the customers to pay down a portion of the loans or risk having their investments liquidated. Read More

Halts Before Open

Under the amended NYSE Listed Company Manual, between 7:00 a.m. and the opening of trading, the NYSE can implement a regulatory halt if (i) the listed company has informed the NYSE staff that it intends to make a public announcement of material news, and (ii) the listed issuer requests that trading in its listed securities be halted pending dissemination of the public announcement.

Halts During Trading Hours

Under amended Rule 202.06, if it is necessary to request information from a NYSE issuer relating to (i) material news, (ii) the listed company’s compliance with Exchange continued listing requirements, or (iii) any other information which is necessary to protect investors and the public interest, the NYSE can halt trading of the listed company’s security until it has evaluated the requested information. Read More

The Securities and Exchange Commission (SEC) on September 28, 2015 charged five Florida residents, including a lawyer and an accountant with insider trading before the acquisition of Pharmasset Inc. by Gilead Sciences Inc.

The SEC filed a complaint claiming that attorneys Robert Spallina and Donald Tescher and accountant Steven Rosen illegally traded private information acquired from a mutual client who served on the board of directors of a company named Pharmasset.

According to the insider trading complaint, on November 8, 2011 during a meeting regarding year-end personal tax and estate planning, the Pharmasset board member and his advisers, including Spallina, Tescher, and Rosen, discussed the fact that the Pharmasset board was trying to reach an agreement to sell the company at a significant premium. Right after this meeting, Spallina, Tescher, and Rosen supposedly breached their duties of trust and confidence to their client by buying Pharmasset securities. Read More